State tax cut proposal advances Senate committee passes 5-year bill to reduce rates 10%

March 27, 1997|By C. Fraser Smith | C. Fraser Smith,SUN STAFF

The odds that Marylanders will get a tax cut improved yesterday as a state Senate committee passed a bill that would reduce income taxes by 10 percent over five years.

The committee proposal would reduce the current 5 percent rate paid by all Marylanders, while targeting relief to low- and middle-income families by making more income exempt from taxation.

The full Senate is expected to approve the measure -- setting the stage for negotiations with the House of Delegates, which has passed its own tax reduction bill.

It calls for a 7 percent cut over two years.

While final passage is not assured, legislative leaders appeared confident yesterday that differences between the two approaches would be resolved and some type of tax cut would be in place before the General Assembly adjourns April 7.

Setting aside concern about whether the state can meet its commitments and pass a tax cut at the same time, Republican and Democratic lawmakers have concluded that tax cutting is a prudent thing for them to do -- if they wish to be re-elected in 1998.

Only a handful of legislators have opposed a cut, even though only a few seem to believe it will produce more jobs, the objective cited by Gov. Parris N. Glendening when he proposed a 10 percent cut last fall.

Substantially altered by both houses, Glendening's bill would have targeted much of the relief to high-income groups.

The approach approved by the Senate Budget and Taxation Committee yesterday would achieve half the 10 percent cut by reducing the state's current 5 percent rate to about 4.7 percent, TC and half by increasing the amount of personal exemptions.

Taxpayers would see no sharp drop in the taxes they pay, since the cut would come in five annual increments of 2 percent each.

When fully implemented, the Senate bill would give a family of four earning $40,000 a tax savings of $291 a year. A family of four with income of $100,000 would save $307 a year.

"Do I think it will produce more jobs?" asked Sen. Barbara A. Hoffman, a Baltimore Democrat and the committee chairwoman. " I don't believe it for a minute.

"But I do know there isn't a person in the world who doesn't want to pay a lower income tax rate."

Because the House included child credits and targeted the relief differently, the savings produced by its plan are different.

Under the House plan, the family earning $40,000 would save $334 -- considerably more than the $100,000-a-year family, which would save $117.

In the compromising that lies ahead, the Senate will argue that its approach is "cleaner" -- less complicated and easier for the taxpayer to follow.

The House leadership has said its bill is fairer to low- and middle-income Marylanders.

Reflecting a session-long debate about the proper objective of tax relief, the Senate committee was split three ways yesterday.

About a third favored sending all the relief to middle-class taxpayers. Another third wanted a flat cut in the 5 percent rate, which they hope would lure businesses to Maryland.

The rest wanted a compromise between the two.

Before approving the compromise devised by Hoffman, the committee heard an impassioned plea for directing all the relief to middle- and lower-income taxpayers.

"We need to cut taxes to help families," said Sen. Christopher Van Hollen Jr. "Let's do it where it has the biggest impact."

The Montgomery County Democrat said the Hoffman proposal is a step toward the outcome he favors, but falls short of what might be done.

By increasing the personal exemption from $1,200 per person to $3,400, his measure would have delivered $440 in gross savings to every Maryland family.

But that argument misses the point, according to Sen. F. Vernon Boozer.

The Baltimore County Republican said the objective is to create an environment in which businesses would move to Maryland or expand here -- and the way to do that is to reduce the 5 percent tax rate as much as possible.

"We ought to send the the House the governor's bill," which achieves its 10 percent cut entirely by reducing the rate, Boozer said.

"If we do what you want, we might as well not do anything as far as economic development is concerned. I don't think it will create any new jobs."

Several other senators said the job-producing potential of a tax cut was so vague they had no difficulty voting for the compromise -- and hoping even a small cut would be marketable by the state's economic development agents and Chamber of Commerce.

Earlier in the Assembly session, Hoffman and Senate President Thomas V. Mike Miller had been been decidedly skeptical that the state could afford a tax cut.

But Hoffman said spending cuts already proposed by the committee, coupled with more robust tax receipts, make the cut possible and prudent.

Cutting taxes by 10 percent would mean the loss of some $300 million in revenue in a state General Fund budget of about $8 billion, once the reduction is fully in place.

Spreading that out over five years, Hoffman said yesterday, means the state doesn't have to swallow the apple whole. It can continue to reduce the budget to make sure the cut is affordable.

If not, she said, it can be delayed or even stopped if necessary.

Pub Date: 3/27/97

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